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Bionol Trustee Settles Claim Over $165M Construction Deal

October 17, 2013 | By Matt Chiappardi | Law360

The Chapter 7 trustee for the estate of ethanol company Bionol Clearfield LLC asked a Delaware bankruptcy court Wednesday to approve a settlement with contractor Fagen Inc. over funds withheld from a $165 million design build agreement for a Pennsylvania ethanol plant.

Trustee Alfred T. Giuliano stated in court filings that after a mediation with Diane Welsh, a retired judge, the sides agreed that the cure amount afforded Fagen over retainage funds withheld after the plant was completed would be set at $1.1 million.

"In connection with the mediation, the trustee and Fagen negotiated in good faith and have agreed to amicably resolve the disputes regarding the proper cure amount due and owing Fagen," the trustee's motion states. "The trustee believes, in his business judgment, that the stipulation is in the best interests of the debtors' estates and all of their creditors, especially in light of the cost, uncertainty and delay of litigation."

When Bionol entered into the lump sum design build agreement with Fagen in February 2008, the ethanol company was able to withhold 10 percent payment from each of the invoices the contractor sent while working on the project, according to the motion.

After the Clearfield County, Pa., plant was completed, several disputes reared their heads between the parties over the release of the money, and by the time Bionol sought court protection in July 2011, all but $2 million of the retained funds had been released to Fagen, the motion states.

By April 2012, Bionol had sold the bulk of its assets to Pennsylvania Grain Processing LLC, and the trustee assigned the design build agreement to the purchaser, according to court records.

But Fagen claimed it had the right to a $2.2 million cure amount, which included interest, and the trustee put $2 million from the sale proceeds into escrow pending either the results of litigation or a settlement, the motion states.

Bionol had argued it was entitled to assess liquidation damages under the design build agreement because of purported delays in the project

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